This blog postulates and discusses the ‘internet business model’ and its mechanization, made up in part of business rules (internet business rules), part culture, part economic system, part techniques. They are not differentiated much here because the model is still evolving.

Friday, 20 January 2017

Value creation in a digital economy and why it matters for businesses

How does
Facebook work?We know it is based on
social (as a business model) and that crowdsourcing enables it. And by mining the data that we, the users
create, turns it into information to support ads sales.

When we use social media, it is crowdsourcing at work.As the term imply, the crowd (public) is sourced.
In this context, crowdsourcing is a technique
employed to engage the public with intent but in an informal manner to
participate in an activity and which taps on the participant’s resources.It can be as simple as time, say, to use an
online service, effort to work on a communal task or assets such as a spare
room.In the case of online services
like Facebook, it is people’s time to use a free service.They use it because there is value. It’s free
because Facebook monetises that usage. For
crowdsourcing to work, it has to be mutual.

From an organisation perspective, crowdsourcing is a tool used to
accomplish an organisational function.From a participant perspective, value is exchanged in the transaction.

This is another
way to look at it.

Facebook is a
modern factory.We, via crowdsourcing
are the ‘workers’ producing the raw material – data.Facebook processes this input, manufacturing informational
and quasi-informational products and adding value to physical ones.These ‘finished products’ – specific and
tailored information are used for sales of ads.

Now compare this
to a factory producing steel?The steel
mill takes in raw material (iron, coke, etc) from mines as inputs and with
workers turn them into steel bars for sale.

What’s the
difference?

The difference is that instead of a factory, this modern version is
a digital platform.Instead of miners, consumers
produce the raw material. Instead of the
assembly line, networks of computers use analytics, machine learning and AI to
assemble insights of information from the data.

This suggests
that a new form of production is emerging just
as factories did in the industrial one.

And if history is asked, this is only the
start.Expect enlargement and further developments
in digital forms of production as we move deeper into the information era.But unlike the industrial age that limits production
to factories, in the information era it will cut across all sectors, including the
government and the public.It is beyond
this post to ponder further but perhaps the effects of datarisation
may offer some hints.And the following
three points too.

1.Redefinition of the term ‘consumer’

Until the
internet, consumers only consume, now
they also produce.

We produce the data,
willingly and unwittingly, for Facebook’s factory or LinkedIn’s.We provide the cars and drivers for Uber’s
‘taxi’ services.And our spare rooms for
AirBnB’s virtual hotel.We produce
answers for Quora’s Q&A business engine.There is value to all these ‘production’.

Businesses
should bear this in mind. Digitisation partly
derives from this.

2.The digital platform

This ‘new’ factory is not your firm’s website.It is much more.A corporate website is mostly passive, designed
to be read while a platform actively engages the consumers using crowdsourcing
initiatives for branding exercises, pre-sales, sales, business development,
product development…..

A digital platform is central to this production process.It is likely to see significant changes in
function, role and technology in time to come.Certainly in 10 years, it’ll be quite a different animal!

3.Data

Old culture
tends to view data as a by-product, not the way to reimagine your organisation planning
for transformation.

Firms have
always used data but in the digital economy, the role of data has been
elevated.What Google sees, telcos do
too but little is done to monetise it while Google built a billion-dollar
search business out of data.Github’s
business model is information around software development while Microsoft saw its
huge development community as a cost centre.Many other startups are taking advantage of data that traditional firms could
not see.As they succeed, the latter becomes
mere followers.Witness banks copying
fintech startups.Being an early-mover
would have equipped them to better compete in sectors being disrupted.

To do that they
have to respect data.

Merely thinking
in terms of big data or analytics is not quite it.Senior leaders could make ‘data’ a part of
their strategic thinking. Better if it’s
‘culturised’.And should they reason that
this is the job for the IT director or CIO, well, that’s an example of not
respecting data and a wrong way to think.IT should be involved but this is mostly a business function.

Executives who
work and breathe ‘data’ are assets.They
would collect emails contacts (clients, public) even before thinking what they
can be used for.If it’s about selling
herb plants, they don’t just write the names on the tag but how it can be used
for health and in cooking, with a website address (used to engage consumers,
some of whom will become customers.)This is an example of using information to sell, like Facebook.

New organisation culture is partly data-driven.

Conclusion

A new production process is evident of the digital economy resulting
in value creation that is markedly different from the conventional.Internet startups have taken advantage of
this, disrupting traditional sectors in the process.There is nothing to stop conventional firms
adopting the same, except perhaps the momentum of old organisation culture and
the fear of change.For those who can
unshackle itself, New Culture is data-driven, customer-centric and open with a
mentality that melds externalisation to the traditional internalisation of
work.They should be aware of the
redefined role of consumers and what they can do for businesses.

Briefly, externalisation
is a means to utilise external resources (manpower, property) and is best
understood by comparing it to internalisation which is how most organisations
operate today.With internalisation,
tasks are carried out internally and in some specific cases by close partners
governed by strict contracts.This is
because of trust and to maintain better control.But as Ronald Coase in his famous theory of
firms dissected it, it is really about cost – it cost less to trust internal
staff and processes compared to the external.That was pre-internet.Today, the
cost structure has changed.Trust can now
be engendered without (rating systems is one way), at little cost. It is also a way to tap better skills.Externalisation
in fact lower costs.